1. Field of the Invention
This invention generally relates to service management technology, and more specifically, the invention relates to transforming IT organizations from supply driven to service oriented, demand driven IT organizations.
2. Background Art
In today's highly competitive economic environment, IT executives are challenged to reduce costs and increase the quality, scope and volume of technical services required to meet their company's needs. This challenge has been manageable to date because of supply-side savings and because the service responsibilities have been spread between many independent groups. However, with the fluctuating demand for information and business critical technology solutions, the current path is not sustainable.
IT organizations strive to provide valuable services to the business that can increase profitability, improve competitive positioning and enhance ability to respond to market changes. In the past, the cost of these services did not need to be quantified because the relative benefits were perceived to be obvious. In an on demand world, IT services must grow or shrink quickly to meet the real-time needs and goals of the business.
Historically, IT organizations focused on supporting business growth, allowing independent groups to deploy heterogeneous technologies without centralized governance. These autonomous groups or silos often maintained different platforms, vendors and processes, which lead to over-provisioned and under-utilized computer resources. Additionally, the lack of a single method to provide feedback or communicate technology requirements has resulted in low customer satisfaction. The vast, complex infrastructure that plagues IT organizations today can often be attributed to rapid growth.
Today, IT organizations are expected to manage a more mature environment and not only be responsive to, but plan for the fluctuating demands of the business. This is not an easy task because IT organizations remain bloated from rapid growth and provide inefficient support services that have left business unit customers dismayed with the lack of value they are receiving for IT support expenditures. Business executives are also questioning the value received from ongoing IT investments, asking for greater IT financial visibility, and requiring more services and higher quality from IT.
CEOs are interested in improving financial performance and increasing shareholder value. Business executives will continue to rely on IT to deliver cost savings because IT spending accounts for nearly 50 percent of many companies' total capital expense. Research shows that for a firm that spends half its IT budget on infrastructure support, a 10 percent decrease in technology infrastructure costs can increase overall net income from 1-5 percent. With these statistics, it is not surprising that IT organizations are being asked to articulate the value of what they deliver to the business or face being outsourced.
CIOs face difficult challenges in an on demand world. They are expected to reduce infrastructure costs, enhance business capabilities, increase customer satisfaction and improve performance while spending less each year. For a number of years IT organizations have used supply-side techniques to reduce costs—including vendor contract negotiation, consolidation and standardization, strategic sourcing, and automation—but the rapid changes in the demand for IT services masks the impact of unit cost reductions achieved through supply-side efficiencies.
The demand change is driven by a number of factors including: existing service volume fluctuations, improved service level requirements with less downtime, and new service functionality needed by the business.
To reduce costs and increase value, IT organizations must shift focus from supply-side to demand-side efficiencies. IT organizations can control demand and shift a large portion of cost management responsibilities to the business by operating more like a competitive business and enabling users to make intelligent decisions about their service consumption and service level requirements
IT executives now have the responsibility to ensure that the enterprise gets the most out of its IT investments—while maintaining a reputation for good customer service. They also need to be able to articulate the value the customer receives from those services, and to understand the underlying costs and triggers that drive those services and how to pull the right levers to make a service effective or render it out of existence. IT Executives must learn how to use financial transparency, volume consumption limits and pricing strategies to influence customer behavior. To meet these goals, most analysts are urging IT organizations to transform from supply driven to service-oriented demand driven delivery organizations.
Enabling a services-oriented demand driven model becomes a critical mechanism to take costs out of an organization without further reducing its capability to execute. Normal cost-cutting efforts continue to lack the singular focus, the breadth and depth of analysis required to address volume growth, service overbuying and the appropriate incorporation of new functionality. To accomplish this cost focused services alignment, a thorough analysis of the company's demand and growth levers and drivers is necessary to figure out exactly what drives consumption.
Ultimately, the ability to realize value—and the wisdom gained in the process—is a critical input to future strategies and decisions on portfolio targets and allocations. It is critical to the success of IT and the survival of the business to get the most out of its scarce resources while allowing IT to focus the business agenda and improve delivery.
Service delivery must now focus on influencing internal customer actions to better manage the technology demand they generate. The service oriented demand driven model provides a means for companies to change their behavior. Many of the excesses from recent years have led employees to believe that their individual purchases have minimal impact on the larger organization's spending. The service oriented demand driven framework challenges these excesses and other assumptions by 1) restructuring the way products and services are purchased and/or subscribed, and 2) making cost control every employee's responsibility, so that a culture of cost control becomes engrained within the organization. By educating the workforce and implementing the appropriate cost controls, demand for low value, high cost technology begins to vanish. The embedded user behavior modifications can help lead to improvements for communicating, reporting, and expense tracking and savings.
Aligning the organization and processes to a customer facing service orientation. Customers will have a self-service mechanism to request and subscribe services. Automated back end workflows are implemented to ensure service delivery efficiently and effectively manages the service requested by the consumer. The automated workflows are continually monitored and managed to ensure optimal service delivery and to measure the value of the service being delivered to customers.
Another key success to an effective service oriented demand driven model is to offer service alternatives. Decision-makers should be presented with a range of options, representing the many different approaches and levels of aggressiveness that can be used to remedy any situation. The solution of choice will depend on the underlying fact base of savings estimates, knowledge of potential areas where resistance may occur, and the estimated time it will take to implement the option. With sufficient analysis, all possibilities can be realistically assessed by considering their potential impact on the organization. Effective partnering allows an organization to integrate with diverse business units and help them meet their cost reduction objectives. To grease the wheels of demand management, the strategy-making process needs to result in a finite set of service alternatives based on prioritization against some type of strategic filter.
IT organizations need to offer tiered service levels for selected services, which allows customers to self-select the level of service they need from infrastructure. Tiers are then offered for the variable cost components of the service that are impacted by a change in customer choice. Organizations should then only tier the few services that constitute a significant portion of the infrastructure budget, instead of spending the resources to create tiers for all services. The job of IT is to ensure there is enough flexibility into their cost model to account for multiple levels of service. By offering business customers a choice of higher or lower service levels with corresponding increases or decreases in their cost, infrastructure empowers business customers to manage their IT costs.
By providing customers transparency into the cost of services and service-level options, they will make smart business decisions about the right level of service they need. Differing cost performance trade-offs then enables customers to reduce their IT bills by selecting lower service levels. Service level tiers can then contribute significantly to overall IT cost reduction efforts by allowing business units to choose service levels that match their budgets and needs. Excessive consumption of a service, such as e-mail storage or cellular phone charges, can be curbed by delivering individual consumption reports to the end users or their business managers. Where specific investments are not providing high benefit to the business, customers are able to reduce that investment level and reallocate funds to services that deliver a higher value to them. For many companies, this is the first time that services, quality and cost are gathered and analyzed holistically.